Rebels Down Ukraine Helicopter in Ceasefire Violation; Putin Offers Concessions; Merkel's Misguided Threat

With the downing of another Ukraine helicopter by pro-Russia rebels, one would think tensions in the region would be up. Yet, analysts seem excited by a symbolic move from Putin.

Bloomberg reports Ukraine Rebels Down Chopper as Putin Makes Concessions.

Pro-Russian rebels in Ukraine shot down a government helicopter in violation of a cease-fire, killing nine troops just hours after President Vladimir Putin met a key European Union demand to help end months of fighting.

Separatists downed an Mi-8 chopper with a shoulder-fired missile in the eastern city of Slovyansk at about 5 p.m. local time, killing everyone on board, a spokesman for the Defense Ministry, Vladyslav Seleznyov, said on his Facebook page.

Earlier today, Putin asked lawmakers in Moscow to rescind the authorization they gave him on March 1 to use force in Ukraine, a conciliatory gesture that sent shares and the ruble higher before he traveled to EU-member Austria. The EU yesterday demanded Russia overturn the mandate, which helped fuel months of volatility in Russian and Ukrainian markets. Putin’s spokesman, Dmitry Peskov, said the Russian leader was trying to stabilize Ukraine after peace talks started yesterday.

“This is most certainly long-awaited positive news in the Ukrainian crisis, but by no means is the Ukrainian crisis over,” Lilit Georgian, a senior analyst at Ihs Global Insight, said by e-mail. “The Russian move is rather symbolic, considering the likelihood of a direct intervention has not been high anyway. Moreover, Moscow could safeguard its interests through the armed pro-Russian insurgents, as well as through economic means.”

Rather symbolic, or completely meaningless? If Putin never intended to invade Ukraine, and I believe he never did, then rescinding the authorization to use force was meaningless.

German Chancellor Angela Merkel told members of her party yesterday that Russia faces full economic sanctions at a June 26-27 EU summit unless it takes verifiable steps to calm the crisis in Ukraine by Friday, according to two people present at the meeting.

Ukraine remains to be convinced that Putin’s moves are more than a tactical retreat to avoid broader sanctions, Yuriy Yakymenko, head of political research at the Razumkov Center, said by phone from Kiev.

Definition of "De-escalation"

“If rebels stop their attacks on Ukrainian government troops, if they stop taking hostages, if Russian mercenaries leave Ukraine, if weapons are taken back to Russia, then we’d say that the process of de-escalation has started,” said Yakymenko.

If Yakymenko implies all of those need to happen, don't expect de-escalation any time soon. If he means any of those, there may be de-escalation over time.

Merkel's Misguided Threat

The German threat of "full economic sanctions at a June 26-27 EU summit" is either a foolish bluff or economic silliness.

Putin is not going to respond to sanctions other than perhaps shut off all gas to Europe if pushed hard enough.

Germany the Sanctions Big Loser

Sanctions are a lose-lose game and Germany would be the big loser as explained by Saxo Bank chief economist Steen Jakobsen in Unvarnished Ukraine Update; Steen Jakobsen on Impact of Ukraine on Germany.

From Steen ...

The Ukraine crisis will go on for much longer than anyone wants, everyone will lose and world growth will disappoint again, but the real issue behind the scenes is Europe’s lack of a coherent energy policy. The present green energy policy is a mess. Green energy is inefficient, tax burdening and nowhere near close to meeting rising energy demand from Europe.

Europe is energy deficient. EU dependency on imports is increasing for all fossil fuels. Oil imports reached 83.5 per cent in 2009 and 64.2 per cent for gas, according to the EU Commission.

The biggest loser will be Germany. There are more than 6,200 German companies engaged in business with Russia. The Economist states that 300,000 German jobs are at risk, German business investment into Russia exceeds €30bn, excluding financing from German banks, but more importantly Germany imports 70 per cent of its energy of which 25 per cent comes from Russia.

Angela Merkel and her government have been caught out by a failed energy policy, which has made electricity a luxury good for many German households. But even worse, she decided that she would rather be dependent on Mr Putin than on nuclear power.

The biggest consequence of the Ukraine conflict could be a revisiting of the 1970s energy crisis, including energy rationing. After close to 30 years of doing this job I am realizing that energy is everything in explaining growth, investment, sentiment and market returns.

Understand energy and its marginal price of production and its delivery and you have the keys to predicting the world. Sadly Europe and the US is stuck in using Sir David Frost’s definition of diplomacy: “Diplomacy is the art of letting somebody else have your way.”

Merkel will likely back off her threat, instead imposing symbolic (meaningless) additional sanctions. We find out in the next three days.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com